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We all understand debt, public or private. When you borrow money, only three options exist for the future:

  • Pay principal and interest on the loan, with money you cannot use for something else.
  • Default on the loan.
  • Renegotiate the loan contract, or refinance the loan, to extend payments further into the future.

Economists say the national debt is different, because we owe the money to ourselves. We say that, even though Chinese banks and other foreign entities hold trillions in Treasury notes. Modern Monetary Theory argues still further that tracking national debt is just a bookkeeping exercise. The debt’s total amount, and likewise the amount government borrows every year, do not matter.

What happens when government debt obligations exceed government’s ability to raise revenue?

Moreover, government’s credit holds up. That is, no one hesitates to lend money to the government, as lenders are confident the Treasury will use its power to raise revenues to make loan payments on time. So far, the Treasury has not had a major default. When it does, lenders’ confidence in Treasury’s credit will deflate quickly.

What happens when government debt obligations exceed government’s ability to raise revenue? We have seen the pattern over and over again in history. The government fails. A government that cannot pay its debts no longer holds onto its power, because it cannot sustain itself. The United States government has headed in this direction.

Some empires, such as the Roman, take centuries to fall. Others take decades. The United States entered its fiscal decline several decades ago, most notably when it could not fund expenses for the Vietnam war from current revenues. It has never caught up.

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For a plot of United States public debt from 1990 to 2018, see: